I do it like this: I use the output cable of PS2 (have yellow out and s-video out in it) to plug in into my computers VIDEO-IN plug (I have GF4 4800 1128MB VIVO), and use windows movie maker to record the video. For audio I connect red and white plug into converter and that into sound card audio-in plug. works like a charm.
So , you need a card, with video-in ability. Usually that are TV Tuner cards or graphic cards with VIVO (video in, video out) option.